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Optimizing your optometry business chart of accounts
By Barbra Dey,
Dey Ophthalmic Consulting
August 21, 2024
It is essential to have a solid financial management system when running any business, including a practice.
Optimizing an optometry businesses chart of accounts provides true clarity into how different aspects of the business are performing.
Some practices have a structured chart of accounts, though more depend wholly on their accountant to put together financial statements from data sent from the office’s EHR system, outsourced payroll provider and from invoices and statements from the person paying vendor bills.
Current Financial Management Practices
When the current financial management practice is dependent on the accountant, there can be details lost in translation. Typically, accountants do not completely understand the intricacies that are involved in how an eyecare business is run.
For example, when a practice is aligned with a buying group, rebate checks are distributed on a quarterly basis that ideally should be allocated back to cost of goods (COGs) for the product category on the income statement.
Another example includes the practice owner paying for healthcare expenses through the business, but if it is not categorized as such, it may appear that employee-loaded benefits are misaligned with benchmarks.
Importance of a Well-Structured Chart of Accounts
A well-structured chart of accounts is vital for several reasons. Primarily, it provides a clear and organized way for practice owners to see how each part of their business is performing.
By breaking down revenue and costs into specific categories such as services, contact lenses and lab costs, owners can gain detailed insights into the financial health of each segment. This granularity allows for more precise monitoring and analysis, helping to identify which areas are thriving and which may require additional focus or improvement.
Moreover, a detailed chart of accounts facilitates more informed decision-making. When owners understand the financial contributions and expenses of each part of their practice, they can make strategic decisions to optimize operations, allocate resources effectively and enhance profitability.
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For example, if the chart of accounts reveals that lab costs are disproportionately high compared to the revenue they generate, it may prompt an investigation into inefficiencies or the exploration of more cost-effective alternatives.
Steps to Optimize Your Chart of Accounts
If you have an income statement that you monitor regularly, I encourage you to review and evaluate your current system.
For example: you can categorize your expenses accurately by breaking down facility expenses into a few subcategories such as rent, instrument repair and maintenance, cleaning, janitorial and then “other” for miscellaneous expenses.
If you don’t have a financial software system in place, I suggest you look into evaluating something like QuickBooks, Quicken or you may want to start out using an Excel financial management template that you can download for free as a member of SCORE (The service Corps of Retired Executives)
Sample Chart of Accounts for an Optometry Practice
To set up your chart of accounts, think about how you want to categorize income into the practice. Is it broken down into “services,” “optical” and “contact lenses” or is it just “revenue in”?
Think about the advantages of sub-categorizing the income. Do you have separate line items for patient or insurance refunds? How do you want to categorize your Cost of Goods Sold (COGS)? Is it important to have a category for clinical sales such as Bruder masks, vitamins, artificial tears, etc.?
Let’s now turn our attention to your expense categories. The primary categories will typically include payroll and employee benefits. It’s important to thoughtfully organize your payroll costs.
Consider whether you want to separate expenses for employees, associate doctors and owners (if they are on a W2). Additionally, you might want to track overtime costs separately. A comprehensive understanding of your benefits plan is also crucial. Can you quickly see the monthly cost of benefits to your practice?
Beyond payroll and benefits, it’s essential to track facility expenses such as rent, utilities and property taxes. Other critical categories include communication systems, office supplies, education, professional dues and licenses and banking fees like credit card processing charges.
Each practice has unique needs, and no two optometry practices need to have an identical chart of accounts.
However, I recommend you also include categories such as marketing and advertising in addition to third-party software services such as EHR and clearinghouse fees. The good news is that you don’t need to set up every category immediately. You can add new expense types as they arise, ensuring your chart of accounts evolves with your practice.
Case Study
A practice I worked with had no financial management software and relied entirely on bank deposits without understanding the income breakdown. Bill payments were handled by an on-site bookkeeper and passed to the accountant, who managed expenses versus COGS.
Once we established a chart of accounts and trained the bookkeeper on best practices, the newfound financial transparency revealed how much the practice was spending on products for sale. This insight led them to adjust their retail pricing and recognize an opportunity to negotiate lower prices with vendors by purchasing through a buying group. As a result, their profit margins significantly increased.
Additionally, the practice owners were surprised to learn the percentage of income from services was much lower than they had assumed. A deeper analysis showed that low reimbursements from in-network vision plans were the cause. After assessing each plan, they decided to drop one that was particularly unprofitable.
Lastly, they reviewed expenses line by line to identify potential savings, the most significant of which came from switching to a more cost-effective credit card processor, reducing their substantial monthly fees.
Conclusion
Implementing and optimizing a well-structured chart of accounts is crucial for gaining clear insights into the financial performance of your optometry practice.
By understanding the details of your revenue and expenses, you can make informed decisions that enhance profitability and operational efficiency.
Evaluate your current financial management practices and consider integrating financial software to streamline processes and achieve greater financial transparency. With a clear and detailed chart of accounts, you can better understand your business’s financial health and drive strategic growth.
Barbra Dey is the president of Dey Ophthalmic Consulting. Barbra served as CEO of a major practice from 2010 until August 2021 when she decided to embark on a new journey to take her experience and knowledge to grow private eyecare practices across the U.S., and show them how to thrive in today’s competitive market. To contact her, e-mail: barbradey@outlook.com
